i should start this post with a disclosure that i have studied minimal economics at college level, and even when i did, i thought it was such garbage that i didn't attend lectures and barely passed (micro-economics: you can graph the hypothetical variables that can never be observed in the real world, that is logical and even beneficial to see the hypothetical effect of the change in one variable on another. but calculating the exact change in an un-observable, hypothetical variable, is intellectual w@nkery at its finest. just because you can, doesn't mean you should).
by the above disclosure, i am giving fair warning that i have little or no understanding of the subject i will be talking about, and am therefore almost begging to be corrected by someone who actually attended lectures / did more than 2 econ units.
when i originally envisaged the ample system, i thought there would be no money, no currency at all, as it is a tool currently used to further entrench the economic power of the elite. i say this as it isn't real, there is no difference in having a wad of money in your pocket to having a deck of cards - it is just pulped wood and ink. the difference is the belief that it is different, and the trust that it can be used in the future to purchase economic resources (ie a medium of exchange and a store of value). an implication of this is it stores the accumulated power of the economic elite to wield over the disenfranchised majority. the accumulated green pulped wood (or accumulated zeroes as it is now) only has this power because we the disenfranchised majority allow it to.
however i came to the conclusion that the benefits of open markets outweighed the risk of a currency, so long as the currency cannot be manipulated by a banking system. currently you have banks creating money through the fractional reserve system, you have a central bank protecting the interests of these banks to ensure 'financial stability' (translate: preserve the current financial and economic power structure), issuing debt as they feel is required to fix the price of money where they think it should be. they then cover-up poor business decisions by banks by purchasing toxic assets at inflated prices while the banks allow the real businesses and employers to die due to lack of funding.
but in an ample system - there is no debt, there are no banks, nobody is actively printing money or performing quantitative easing, individuals can't take out loans, businesses don't need funding and don't need to pay interest, or dividends, or provide capital gains on shares that no longer exist. there is no federal reserve rate to falsely manage business levels in an economy. the boom-bust cycle that has been observed for centuries in market economies is entirely a money and debt phenomena. a bust is where people can't pay their creditors, but in an ample system, there is no debt, liabilities are immediately settled, companies can go negative in their currency reserves as currency isn't real anyway. but those businesses that are least efficient are culled, to be absorbed by efficient businesses or to start new businesses based on new ideas, new products, new practices.
the defacto currency of 'hours', as mentioned before, is effectively printed when citizens work. assuming a random minimum quota of 30 hours that citizens have to work every week to have their basic needs covered plus a minimum level of luxuries, their 'bank account' goes up 30 hours at the end of the week. the qualifying business' bank account goes down a corresponding amount, and this feeds in to the efficiency measure of the business. the citizens then spend their hours on whatever they want (goods, services, infrastructure, research, gift it directly to others, total economic freedom). various businesses receive these hours as income, also contributing to their efficiency rating.
so at a basic level (ie, my level), as citizens work, they produce goods and services. except for a small timing difference (hours expire like reward points on a credit card, to ensure they can't be hoarded to obtain unfair economic power), total money produced in a period is equal to total consumption of goods and services at the consumer level. the higher the population, the more hours worked, the higher the money produced, and the more goods and services that are produced to be purchased. it would make sense to me, given corresponding amounts of both money and goods and services to be purchased, there would be a downward bias in prices due to progressive improvements in efficiency as the less efficient businesses are culled, and as innovative new technologies come to the market drawing demand away from outdated goods and services.
for businesses, they would purchase inputs from other businesses (or pay to extract it from the ground etc). if it has a positive balance of hours, it would show a surplus of income over expenses, approximately the same as profitability in a capitalist system. payment for these inputs / labour costs is therefore existing money circulating through the system. if there is a negative balance (only businesses are allowed to go negative, not citizens), effectively they are printing money, but still creating goods and services for purchases. as any new money is offset by a corresponding increase in production, it seems logical to me that there wouldn't be a sudden increase in money floating around the system, chasing the same number of goods, and pushing up prices.
government, by my thinking, should have no income at all. if they have an income it suggests to me they are providing a good or service, and in an economic system where it is so easy to start a business as long as there is demonstrable demand, this product or service would be provided by a (more efficient) private sector business. i see government agencies therefore being restricted to pure policy and regulation, plus services that should not be charged for (fire services, police, prisons, armed forces). the exception i can see being fines and penalties. government agencies would therefore be permanently with a negative balance of hours, any purchase from them increasing this negative would therefore be printing money with no offsetting increase in production. this would therefore have an inflationary impact, which isn't good.
in the capitalist system, this is coerced away via compulsory taxation, and any remaining deficit is covered by incurring debt (which is working real well for greece and other parts of europe at the moment, with other countries probably to follow shortly). the temptation for all government departments and politicians is to spend up from this bottomless well, which necessitates rigorous systems to limit this urge.
in the ample system, i would suggest no tax. by taxing, you create a self-justifying system for government expenditure. the default position is any tax income is to be spent, with any reduction in taxes a cynical ploy to pretend tax-payers are receiving largesse, rather than getting their own money back. and by default, the country pays for the government it has, whether or not there is explicit taxation. i think it is a valuable psychological tool to see government as a large expense, so that we can all readily see they are a burden on society and should be minimised.
the cumulative negative position would show how much of a burden they are, and i would suggest there needs to be a specified limit on government as a % of private. the auditors also need to be very active in ensuring maximum efficiency in government, with full disclosure of all expenses, and penalties in place to ensure no politician or government employee is receiving benefits not received by all citizens.
the inflationary impact from government would i think be more than offset by the deflationary impact of efficiency and no new money without offsetting goods and services in the private sector.
Tuesday, 4 December 2012
Monday, 3 December 2012
bankruptcy vs efficiency
in a capitalist society, bankruptcy is dreaded, an outcome to be avoided any way possible. what is bankruptcy, and why is it so bad?
insolvency is the inability to meet your financial obligations as and when they fall due, with bankruptcy being when the courts recognise this inability to pay. at this point the company is either wound down, and sold off to pay creditors what it can, or provided with special freedoms / protections to allow it to trade out of bankruptcy (depending on what country you are looking at).
the inability to meet obligations would normally result from not making a profit for a period long enough to exhaust the working capital. it could also result from tying up capital in assets that cannot be converted to cash readily, but either way it means the entity cannot pay its liabilities, it cannot service its debts, and therefore under the rules of capitalism it should no longer retain stewardship of those assets.
bankruptcy is traumatic for all involved - creditors frequently get only a small amount back, shareholders even less, employees lose benefits, customers may not receive goods paid for, management become pariahs who failed the commerce game and will forever be stained by having guided a business into such dire straights.
but in reality - the assets still exist, and can still be used to produce goods or services as they have been. it is only in the human mind that the business, including the assets, has failed, and therefore must be disbanded. the human mind comes to this conclusion due to how the assets are funded. for example, if there was no liabilities, no debt, (ie 100% equity), the business can never go bankrupt, however the shareholders may choose to liquidate the assets if the feel their return on assets is inadequate. it is having debt, liabilities, that sets the conditions where bankruptcy may result.
so not being a natural law, merely being a concept in the human mind, there is no actual need for bankruptcy. just different rules for the game are required.
a bit of a tangent, but serfdom was a system prevalent in medieval europe where the lords retained ownership of the fields, but would allow the 'serfs' to grow crops on the fields in return for a substantial portion of the produce. the serfs in this system were trapped in subsistence and poverty, and the system is generally held to be grossly unfair.
in the modern capitalist system, businesses cannot be started without funding. this funding isn't real, there is no real asset that is provided to new businesses. it is the accumulated profits of prior economic activities representing power over future economic resources. this funding is largely wielded by an economic elite (frequently i read the ratio that 80% of the worlds wealth is held by 20% of the population, and am sure that the top 5-10% hold the vast majority of it). this funding is therefore equivalent to a field being tilled by a serf - you can use the funding, but only if you can pay your lord his required tithe, which will allow you to subsist a little longer. you may even be able to feed yourself in retirement.
effectively, bankruptcy is not having the capacity to pay a tithe to your master, in recognition of their previously accumulated power and resources which they want to continue building. this tithe (in the form of interest, dividends, taxes or capital gains) makes it more difficult to achieve a profit, but not impossible. the significance of profit is that, based on the market price of inputs and outputs, the business is adding value. while the money it is measured in isn't real, i think the underlying message of adding value to society is useful.
in the ample system, i have suggested that, rather than being required to make a profit as in capitalism, businesses be required to satisfy demand (a pre-requisite for profit, you could say) and maximise efficiency. i consider maximising efficiency a better measure because profit isn't necessarily meaningful, whether a company is making or losing something that isn't real in the first place (money). whether they are building up more of this fake resource on their balance sheet is actually irrelevant, but for the signal it gives on adding value based on market prices.
what if, rather than companies going bankrupt when they can't make a profit and can't service their liabilities, they are allowed to continue to operate due to the fact they are satisfying demand, their customers find their product or service of use and attach value in continuing to receive it. but, in recognition that society needs to make the best use of its resources, the least efficient companies in each sector are liquidated, effectively allowing the remaining more efficient businesses to purchase the assets and use them in their more efficient operations.
effectively, i envisage this efficiency measure to operate similar to profitability, probably be measured based on the ratio of the income measured in the defacto currency 'hours' to the costs. however, instead of a fake threshold (the business is not profitable, cannot meet it's obligations, and will be forced into bankruptcy), companies can go negative in 'hours' and continue to service their customers assuming there is still demand. the least efficient 10% (or other %) on an annual basis lose their business certification, with the auditors selling the assets on the open market to remaining businesses. in an ample system, there is no debt, there are no shareholders, liabilities are always settled as there is no impediment to going negative in the defacto currency 'hours' (just for business, private individuals cannot go negative).
employees are the most adversely affected by this loss of certification, but as they are guaranteed their minimum needs, and as there abundant jobs due to the ease of starting a business (no funding required, just demand for the product and a business plan), i foresee it being less stressful than bankruptcy in capitalism and much easier to find alternate employment.
a major benefit i see in replacing profitability with efficiency is that it facilitates 'creative destruction'. it 'destroys' those businesses least able to add value to society, offering up their assets and labour to businesses able to extract a larger societal dividend from them. and then does it again the next year, and the next, in a never-ending cycle toward a perfection that can never be achieved. also, there is no stigma attached to it, there is no impediment to starting a new business, people can still contribute to society to the limit of their ability, simultaneously having their needs met and achieving as affluent a lifestyle as they want based on how much they want to work.
insolvency is the inability to meet your financial obligations as and when they fall due, with bankruptcy being when the courts recognise this inability to pay. at this point the company is either wound down, and sold off to pay creditors what it can, or provided with special freedoms / protections to allow it to trade out of bankruptcy (depending on what country you are looking at).
the inability to meet obligations would normally result from not making a profit for a period long enough to exhaust the working capital. it could also result from tying up capital in assets that cannot be converted to cash readily, but either way it means the entity cannot pay its liabilities, it cannot service its debts, and therefore under the rules of capitalism it should no longer retain stewardship of those assets.
bankruptcy is traumatic for all involved - creditors frequently get only a small amount back, shareholders even less, employees lose benefits, customers may not receive goods paid for, management become pariahs who failed the commerce game and will forever be stained by having guided a business into such dire straights.
but in reality - the assets still exist, and can still be used to produce goods or services as they have been. it is only in the human mind that the business, including the assets, has failed, and therefore must be disbanded. the human mind comes to this conclusion due to how the assets are funded. for example, if there was no liabilities, no debt, (ie 100% equity), the business can never go bankrupt, however the shareholders may choose to liquidate the assets if the feel their return on assets is inadequate. it is having debt, liabilities, that sets the conditions where bankruptcy may result.
so not being a natural law, merely being a concept in the human mind, there is no actual need for bankruptcy. just different rules for the game are required.
a bit of a tangent, but serfdom was a system prevalent in medieval europe where the lords retained ownership of the fields, but would allow the 'serfs' to grow crops on the fields in return for a substantial portion of the produce. the serfs in this system were trapped in subsistence and poverty, and the system is generally held to be grossly unfair.
in the modern capitalist system, businesses cannot be started without funding. this funding isn't real, there is no real asset that is provided to new businesses. it is the accumulated profits of prior economic activities representing power over future economic resources. this funding is largely wielded by an economic elite (frequently i read the ratio that 80% of the worlds wealth is held by 20% of the population, and am sure that the top 5-10% hold the vast majority of it). this funding is therefore equivalent to a field being tilled by a serf - you can use the funding, but only if you can pay your lord his required tithe, which will allow you to subsist a little longer. you may even be able to feed yourself in retirement.
effectively, bankruptcy is not having the capacity to pay a tithe to your master, in recognition of their previously accumulated power and resources which they want to continue building. this tithe (in the form of interest, dividends, taxes or capital gains) makes it more difficult to achieve a profit, but not impossible. the significance of profit is that, based on the market price of inputs and outputs, the business is adding value. while the money it is measured in isn't real, i think the underlying message of adding value to society is useful.
in the ample system, i have suggested that, rather than being required to make a profit as in capitalism, businesses be required to satisfy demand (a pre-requisite for profit, you could say) and maximise efficiency. i consider maximising efficiency a better measure because profit isn't necessarily meaningful, whether a company is making or losing something that isn't real in the first place (money). whether they are building up more of this fake resource on their balance sheet is actually irrelevant, but for the signal it gives on adding value based on market prices.
what if, rather than companies going bankrupt when they can't make a profit and can't service their liabilities, they are allowed to continue to operate due to the fact they are satisfying demand, their customers find their product or service of use and attach value in continuing to receive it. but, in recognition that society needs to make the best use of its resources, the least efficient companies in each sector are liquidated, effectively allowing the remaining more efficient businesses to purchase the assets and use them in their more efficient operations.
effectively, i envisage this efficiency measure to operate similar to profitability, probably be measured based on the ratio of the income measured in the defacto currency 'hours' to the costs. however, instead of a fake threshold (the business is not profitable, cannot meet it's obligations, and will be forced into bankruptcy), companies can go negative in 'hours' and continue to service their customers assuming there is still demand. the least efficient 10% (or other %) on an annual basis lose their business certification, with the auditors selling the assets on the open market to remaining businesses. in an ample system, there is no debt, there are no shareholders, liabilities are always settled as there is no impediment to going negative in the defacto currency 'hours' (just for business, private individuals cannot go negative).
employees are the most adversely affected by this loss of certification, but as they are guaranteed their minimum needs, and as there abundant jobs due to the ease of starting a business (no funding required, just demand for the product and a business plan), i foresee it being less stressful than bankruptcy in capitalism and much easier to find alternate employment.
a major benefit i see in replacing profitability with efficiency is that it facilitates 'creative destruction'. it 'destroys' those businesses least able to add value to society, offering up their assets and labour to businesses able to extract a larger societal dividend from them. and then does it again the next year, and the next, in a never-ending cycle toward a perfection that can never be achieved. also, there is no stigma attached to it, there is no impediment to starting a new business, people can still contribute to society to the limit of their ability, simultaneously having their needs met and achieving as affluent a lifestyle as they want based on how much they want to work.
Sunday, 2 December 2012
land
in a system with no savings, no investments, and no debt, how do you allocate land? who decides? clearly lots of potential for corruption, people with power inevitably feel they are entitled to the best in life, which usually involves real estate with harbour views.
the basis of real estate in the ample system is that no one owns it, therefore everyone rents. without trying to get all spiritual, even in capitalism, nobody really owns real estate. we at best temporarily occupy it. this contractual occupation may last a while, but eventually, systems collapse, revolutions occur, empires crumble, and species a little too intelligent for their own good self-destruct. but the land will almost certainly remain, unaffected by the upheavals in the human domain.
renting in the ample system is all quite straight forward. everyone is entitled to a minimum area in "good" habitable condition. they can rent anywhere they want, any size they want, any quality and facility they want, but they have to pay the going market rate in the defacto currency 'hours'. they then get reimbursed the cost of the minimum area in the worst suburb in close proximity. the system would apply to everyone including politicians, auditors, secret police.
i expect that without investments, where everyone is restricted to just their salary, and due to full employment and useless jobs no longer being performed (finance industry, sales and marketing, the majority of the government, for example), there would be much less disparity in disposable income, and therefore much less disparity between 'ghettos' and affluent suburbs. and it would be impossible to afford a huge mansion with these restrictions.
that is all fine for residential accommodation, how about commercial sector? obviously still renting, still based on market rates, the business able to select the best location / facilities that match their needs. in an ample system, a business doesn't necessarily need to make a profit, so you could argue that commercial rents would just skyrocket as businesses kept bidding up the prices in preferable locations. but it would be constrained by the need to maximise efficiency, with the least efficient businesses being culled / losing their certification by the auditors. i still need to properly define efficiency, but it could just be the ratio of costs to income as measured in the defacto currency of hours, and therefore paying high rent will reduce efficiency and make it relatively more difficult to avoid the cull.
the actual building of structures (and logically, the allocation of land prior to the start of building) would be similar to the building of infrastructure. effectively first in first served, once the business has secured the resources to develop the land and has the necessary approvals. i don't see any way around having a government agency involved in planning land and issuing approvals, however definitely their power needs to be curtailed when compared to the current system. if demand is there to develop land, while it shouldn't be a rubber stamp, a government department shouldn't be holding up development. if they are, they need more resources / to make more efficient use of their existing resources, with the auditors providing the enforcement power to dump the management. on consideration, it could be out-sourced - any job done by government has a private sector counter-part. i guess it would just be the standards (what h&s standard is required etc) that would need to be driven by politicians / government, but even then it should be judged against other departments / other regions, and if it is slow or wasteful - the auditors step in.
these approvals would be in the nature of health & safety, environmental, not the desirability of the development. that is no business of a government employee to dictate to the market. keep in mind, businesses are very easy to start in an ample system - just demonstrated demand, and a business plan approved by an auditor.
so for example, if businesses keep having shortages of a key component needed to manufacture cars, the increased price would send the message that it would be easy to start an efficient business manufacturing these widgets, and this increased interest in widget making would send the message via increased rent that another widget factory would be good. a builder (existing or a start-up, doesn't matter), observing the increasing rent, would decide developing another widget factory would be an efficient use of resources, and would put in an application for allocation of land. the government department, as the plan shows adequate health & safety provisions and has environmental protection standards in line with other factories, approves it. if there are competing applications for the same land, first in first served, so it would be incumbent upon government to expedite all applications, and incumbent on applicants to make sure the application is complete and comprehensive.
another important point - no one is making a profit as such, everyone is just working to attain their preferred level of affluence by working minimum hours plus extra if they want a better lifestyle. the current system has so much legal angst because everyone is bitterly trying to capture profit for themselves. if profit is no longer the goal, if the goal is now to satisfy demand / provide a service / improve society, there would be less legal battles, and less lawyers, both of which would be better for society.
the basis of real estate in the ample system is that no one owns it, therefore everyone rents. without trying to get all spiritual, even in capitalism, nobody really owns real estate. we at best temporarily occupy it. this contractual occupation may last a while, but eventually, systems collapse, revolutions occur, empires crumble, and species a little too intelligent for their own good self-destruct. but the land will almost certainly remain, unaffected by the upheavals in the human domain.
renting in the ample system is all quite straight forward. everyone is entitled to a minimum area in "good" habitable condition. they can rent anywhere they want, any size they want, any quality and facility they want, but they have to pay the going market rate in the defacto currency 'hours'. they then get reimbursed the cost of the minimum area in the worst suburb in close proximity. the system would apply to everyone including politicians, auditors, secret police.
i expect that without investments, where everyone is restricted to just their salary, and due to full employment and useless jobs no longer being performed (finance industry, sales and marketing, the majority of the government, for example), there would be much less disparity in disposable income, and therefore much less disparity between 'ghettos' and affluent suburbs. and it would be impossible to afford a huge mansion with these restrictions.
that is all fine for residential accommodation, how about commercial sector? obviously still renting, still based on market rates, the business able to select the best location / facilities that match their needs. in an ample system, a business doesn't necessarily need to make a profit, so you could argue that commercial rents would just skyrocket as businesses kept bidding up the prices in preferable locations. but it would be constrained by the need to maximise efficiency, with the least efficient businesses being culled / losing their certification by the auditors. i still need to properly define efficiency, but it could just be the ratio of costs to income as measured in the defacto currency of hours, and therefore paying high rent will reduce efficiency and make it relatively more difficult to avoid the cull.
the actual building of structures (and logically, the allocation of land prior to the start of building) would be similar to the building of infrastructure. effectively first in first served, once the business has secured the resources to develop the land and has the necessary approvals. i don't see any way around having a government agency involved in planning land and issuing approvals, however definitely their power needs to be curtailed when compared to the current system. if demand is there to develop land, while it shouldn't be a rubber stamp, a government department shouldn't be holding up development. if they are, they need more resources / to make more efficient use of their existing resources, with the auditors providing the enforcement power to dump the management. on consideration, it could be out-sourced - any job done by government has a private sector counter-part. i guess it would just be the standards (what h&s standard is required etc) that would need to be driven by politicians / government, but even then it should be judged against other departments / other regions, and if it is slow or wasteful - the auditors step in.
these approvals would be in the nature of health & safety, environmental, not the desirability of the development. that is no business of a government employee to dictate to the market. keep in mind, businesses are very easy to start in an ample system - just demonstrated demand, and a business plan approved by an auditor.
so for example, if businesses keep having shortages of a key component needed to manufacture cars, the increased price would send the message that it would be easy to start an efficient business manufacturing these widgets, and this increased interest in widget making would send the message via increased rent that another widget factory would be good. a builder (existing or a start-up, doesn't matter), observing the increasing rent, would decide developing another widget factory would be an efficient use of resources, and would put in an application for allocation of land. the government department, as the plan shows adequate health & safety provisions and has environmental protection standards in line with other factories, approves it. if there are competing applications for the same land, first in first served, so it would be incumbent upon government to expedite all applications, and incumbent on applicants to make sure the application is complete and comprehensive.
another important point - no one is making a profit as such, everyone is just working to attain their preferred level of affluence by working minimum hours plus extra if they want a better lifestyle. the current system has so much legal angst because everyone is bitterly trying to capture profit for themselves. if profit is no longer the goal, if the goal is now to satisfy demand / provide a service / improve society, there would be less legal battles, and less lawyers, both of which would be better for society.
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